Paper 18 Corporate Financial Reporting Syllabus 2012 Whenever necessary suitable assumptions may be made and disclosed by way of note. Working Notes should form part of the answers Answer all the questions. 1. Answer any two of the following: [2 5] (a) State the objectives and scope of International Accounting Standard 8. [5] (b) What are the recognition criteria of share Based Payment under International Financial Reporting Standard (IFRS) 2? [5] (c) Cost of Production of product A is given below: Raw material per unit 160 Wages per unit 50 Overhead per unit 50 260 As on the balance sheet date the replacement cost of raw material is 110 per unit. There are 100 units of raw material on 31.3.12. Calculate the value of closing stock of raw materials in the following conditions: (i) If finished product is sold at 275 per unit, what will be the value of closing stock of raw material? (ii) If finished product is sold at 240 per unit, what will be the value of closing stock of raw material? [5] 2. (a) The summarized Balance Sheets of S Ltd. and H Ltd. as on 31.3.12 were as follows. ( in Lakhs) Liabilities S Ltd. H Ltd. Equity Share capital Reserves and surplus 10% 25,000 Debentures of 100 each Other Liabilities 100 500 150 30 90 25 Total 750 145 Assets Fixed assets at cost Less: Depreciation Investment in H Ltd. 250 125 125 100 55 45 2 Lakhs Equity shares of 10 each at cost 32 10% 25,000 debentures of 100 each at cost 24 56 Current assets Less: Current liabilities 1,000 431 569 300 200 100 Board of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
Total 750 145 In a scheme of absorption duly approved by the Court, the assets of H Ltd. were taken over at an agreed value of 140 lakhs. The liabilities were taken over at par. Outside shareholders of H Ltd. were allotted equity shares in S Ltd. at a premium of 90 per share in satisfaction of other claims in H Ltd. for purposes of recording in the books of S Ltd. Fixed assets taken over from H Ltd. were revalued at 50 lakhs. The scheme was put through on 1st April, 2012. a. Pass journal Entries in the books of S Ltd. b. Show the balance of S Ltd. after absorption of H Ltd. [15] (b) The following are the Balance Sheets of and B Ltd. as on 31st December 2012. Liabiltiies B Ltd. Assets B Ltd. Share capital Equity shares of 10 each 10% Preference shares of 10 each Reserves and surplus Secured loans: 12% Debentures Current liabilities: Sundry creditors Bills payable 12,00,000 4,00,000 6,00,000 4,00,000 4,40,000 60,000 6,00,000 2,00,000 4,00,000 3,00,000 2,50,000 50,000 Fixed Assets Investment: 6,000 shares of B Ltd. 5,000 shares of Current Assets: Stock Debtors Bills receivable Cash at bank 14,00,000 1,60,000 4,80,000 7,20,000 1,20,000 2,20,000 5,00,000 1,60,000 6,40,000 3,80,000 40,000 80,000 31,00,000 18,00,000 31,00,000 18,00,000 Fixed assets of both the companies are to be revalued at 20% above book value. Stock in trade and Debtors are taken over at 10% lesser than their book value. Both the companies are to pay 10% Equity dividend, Preference dividend having been already paid. After the above transactions are given effect to, will absorb B Ltd. on the following terms. i. 8 Equity shares of 10 each will be issued by at par against 6 shares of B Ltd. ii. 10% Preference Shareholders of B Ltd. will be paid at 10% discount by issue of 10% iii. iv. Preference Shares of 100 each at par in 12% Debentureholders of B Ltd. are to be paid at 8% premium by 12% Debentues in issued at a discount of 10%. 60,000 is to be paid by to B Ltd. for Liquidation expenses. Sundry creditors of B Ltd. include 20,000 due to Prepare : (a) Absorption entries in the books of (b) Statement of consideration payable by [15] Board of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 2
3. (a) On 31.03.2012 the Balance Sheets of H Ltd. and its subsidiary S Ltd. stood as follows (in Lakhs) Liabilities H Ltd. S Ltd. Assets H Ltd. S Ltd. Share Capital: Authorised Issued and Subscribed: Equity Shares (10) Fully Paid General Reserve Profit and Loss Account Bills Payable Sundry Creditors Provision for Taxation Proposed Dividend 30,000 12,000 Land and Buildings Plant and Machinery Furniture and Fittings Investments in shares in S Ltd. 24,000 5,568 5,430 744 2,922 1,710 2,400 9,600 2,760 3,240 320 1,708 788 The following information is also provided to you: Stock Debtors Cash and Bank Balances Bills Receivable Sundry Advances 5,436 9,810 3,690 6,000 7,898 5,200 2,980 720 1,040 9,800 1,172 3,912 2,726 408 398 42,774 18,416 42,774 18,416 1. H Ltd. purchased 360 Lakhs shares in S Ltd. on 01.04.2011 when the balances to General Reserve and Profit and Loss Account of S Ltd. stood at 6,000 Lakhs and 2,400 Lakhs respectively. 2. On 04.07.2011 S Ltd. declared a dividend @ 20% for the year ended 31.03.2011. H Ltd. credited the dividend received by it to its Profits and Loss Account. 3. On 01.01.2012 S Ltd. issued 3 fully paidup shares for every 5 shares held as Bonus Shares out of balances in its General Reserve as on 31.03.2011. 4. On 31.03.2012 all the Bills Payable in S Ltd. s Balance Sheet were acceptances in favour of H Ltd. But on that date, H Ltd. held only 45 Lakhs of these acceptances in hand, the rest having been endorsed in favour of its Creditors. 5. On 31.03.2012 S Ltd. s stock included goods which it had purchased for 200 Lakhs from H Ltd. which made a profit @ 25% on cost. Prepare a Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. as at 31.03.2012 bearing in mind the requirements of AS 21. [15] OR (b) X Ltd. is a holding Company and Y Ltd. and Z Ltd. are subsidiaries of X Ltd. Their Balance Sheets as on 31.12.2012 are given below Liabilities X Ltd. Y Ltd. Z Ltd. Assets X Ltd. Y Ltd. Z Ltd. Share Capital Reserves Profit & Loss A/c Z Ltd. Balance Sundry Creditors X Ltd. Balance 1,50,000 42,000 24,000 4,500 10,500 1,50,000 15,000 18,000 7,500 10,500 90,000 13,500 13,500 Fixed Assets Investments in: Shares of Y Ltd. Shares of Z Ltd. Stock in Trade Y Ltd. Balance Sundry Debtors X Ltd. Balance 30,000 1,12,500 19,500 18,000 12,000 39,000 90,000 79,500 31,500 64,500 48,000 4,500 Total 2,31,000 2,01,000 1,17,000 Total 2,31,000 2,01,000 1,17,000 Board of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 3
The following particulars are given: 1. The Share Capital of all Companies is divided into shares of 10 each. 2. X Ltd. held 12,000 shares in Y Ltd. and 1,500 shares of Z Ltd. 3. Y Ltd. held 6,000 shares of Z Ltd. 4. All these investments were made on 30.6.2011. 5. On 31.12.2011, the position was as shown below: (Amount in ) Particulars Reserve P&LA/c Creditors Fixed Assets Stock Debtors Y Ltd. Z Ltd. 12,000 11,250 6,000 4,500 6. 10% Dividend is proposed by each Company. 7,500 1,500 90,000 64,500 6,000 53,250 72,000 49,500 7. The whole of stock in trade of Y Ltd. as on 30.06.2012 ( 4,000) was later sold to X Ltd. for 4,400 and remained unsold by X Ltd. as on 31.12.2012. 8. Cash in transit from Y Ltd. to X Ltd. was 1,500 as at the close of business. You are required to prepare the Consolidated Balance Sheet of the group as at 31.12.2012. [15] 4. (a) Star Ltd. agreed to absorb Moon Ltd. on 31st March, 2012, whose Balance sheet stood as follows : Liabilities Assets Share capital 80,000 shares of 100 each fully paid Reserves and surplus: General Reserve Current Liabilities and Provisions: 60,00,000 20,00,000 Fixed assets Current assets: Stock in trade Sundry Debtors 76,00,000 4,00,000 10,00,000 Sundry creditors 10,00,000 The consideration was agreed to be paid as follows: a. A payment in cash of 50 per share in Moon Ltd. and 90,00,000 90,00,000 b. The issue of shares of 100 each in Star Ltd., on the basis of 3 Equity Shares (valued at 150) and two 10% cumulative preference share (valued at 100) for every five shares held in Moon Ltd. It was agreed that Star Ltd. will pay in cash for fractional shares equivalent at agreed value of shares in Moon Ltd. i.e. 650 for five shares of 500 paid. The whole of the Share capital consists of shareholdings in exact multiple of five except the following holding. Bharati 76 Sonu 56 Hitesh 52 Jagat 8 Other individuals 8 (eight members holding one share each) 200 Board of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 4
Prepare a statement showing the purchase consideration receivable by above shareholders in shares and cash. [10] (b) The following are the Balance sheets (as at 31.3.2011) of and C Ltd.: Liabilities C Ltd. Assets C Ltd. Share Capital: Fixed Assets 75,00,000 45,00,000 Equity Shares of.10 each 54,00,000 27,00,000 Investments 7,50,000 7,50,000 10% Preference shares of.100 each 18,00,000 Current Assets Stock 27,00,000 18,00,000 12% Preference shares of.100 each 9,00,000 Debtors Bills receivable 22,50,000 75,000 18,00,000 15,000 Reserve and Surplus: Cash at Bank 2,25,000 1,35,000 Statutory Reserve 1,50,000 1,50,000 General Reserve 37,50,000 Secured Loan 25,50,000 15% Debentures 7,50,000 12% Debentures Current Liabilities 7,50,000 Sundry creditors 16,20,000 19,20,000 Bills payable 30,000 30,000 1,35,00,000 90,00,000 1,35,00,000 90,00,000 Contingent liabilities for bills receivable discounted 30,000. (A) The following additional information is provided to you: C Ltd. Profit before Interest and Tax 22,12,500 11,70,000 Rate of Incometax 40% 40% Preference dividend 1,80,000 1,08,000 Equity dividend 5,40,000 4,05,000 Balance profit transferred to Reserve account. Board of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 5
(B) The equity shares of both the companies are quoted on the Mumbai Stock Exchange. Both the companies are carrying on similar manufacturing operations. (C) A Ltd proposes to absorb business of C Ltd. as on 31.3.2011. The agreed terms for absorption are: (i) (ii) 12% Preference shareholders of C Ltd. will receive 10% Preference shares of sufficient to increase their present income by 20%. The Equity shareholders of C Ltd. will receive equity shares of on the following terms: (a) The Equity shares of C Ltd. will be valued by applying to the earnings per share of C Ltd. 60 per cent of price earnings ratio of based on the results of 201011 of both the Companies. (b) The market price of Equity shares of is 40 per share. (c) The number of shares to be issued to Equity shareholders of C Ltd. will be based on the 80% of market price. (d) In addition to Equity shares, 10% Preference shares of will be issued to the equity shareholders of C Ltd. to make up for the loss in income arising from the above exchange of shares based on the dividends for the year 201011. (i) (ii) 12% Debentureholders of C Ltd. are to be paid at 8% premium by 15% debentures in issued at a discount of 10%. 24,000 is to be paid by to C Ltd. for liquidation expenses. Sundry Creditors of C Ltd. include 30,000 due to Bills receivable discounted by were all accepted by C Ltd. (iii) Fixed assets of both the companies are to be revalued at 20% above book value. Stock in trade is taken over at 10% less than their book value. (iv) Statutory reserve has to be maintained for two more years (v) For the next two years no increase in the rate of equity dividend is anticipated. (vi) Liquidation expense is to be considered as part of purchase consideration. You are required to: (i) Find out the purchase consideration and (ii) Give journal entries in the books of [10] 5. (a) What are the roles of Audit Committee of the company under clause 49 of listing agreement? [10] (b)(i) State the disclosure requirement of Contingent liabilities and Assets under AS 29 Provisions, Contingent liabilities and Contingent Assets. [5] (ii) What information can we gather from Value Added Statements? [5] Board of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 6
6. (a)(i) On the basis of the following information related to trading in Options, you are required to pass relevant Journal Entries (at the time of inception and at the time of final settlement) in the books of Tom (Buyer) and Jerry (Seller). Assume that the price on expiry is 950/ and both Tom and Jerry follow the calendar year as an accounting year. Date of Purchase Option Type Expiry Date Premium per unit Contract Lot Multiplier 29.03.2013 Equity Index, Call 31.05.2013 10 1,000 units 850 p.u [7] (ii) A Company purchased a plant for 50 Lakhs during the financial year and installed it immediately. The price charged by the Vendor included Excise Duty (CENVAT Credit Available) of 5 Lakhs. During this year, the Company also produced excisable goods on which Excise Duty chargeable is 5.00 Lakhs. Show the Journal Entries describing CENVAT Credit treatment. At what amount should the Plant be capitalized? [8] (b)(i) Explain the need and significance of Environmental Accounting. [10] (ii) On April 1, 2012, a company Sky Blue Ltd. offered 100 shares to each of its 1,500 employees at 60 per share. The employees are given a month to decide whether or not to accept the offer. The shares issued under the plan shall be subject to lockin on transfers for three years from grant date. The market price of shares of the company on the grant date is 70 per share. Due to postvesting restrictions on transfer, the fair value of shares issued under the plan is estimated at 68 per share. On April 30, 2012, 1,200 employees accepted the offer and paid 60 per share purchased. Nominal value of each share is 10. Record the issue of shares in book of the Sky Blue Ltd. under the aforesaid plan. [5] 7. (a) From the following information, prepare cash flow statement by using indirect method as per AS3. Balance Sheet Liabilities 31.3.2013 31.3.2014 Assets 31.3.2013 31.3.2014 Capital 50,00,000 60,00,000 Plant & Machinery 27,30,000 42,70,000 Retained Earnings 26,50,000 36,90,000 Less : Depreciation 6,10,000 7,90,000 Debentures 9,00,000 21,20,000 34,80,000 Current Liabilities : Current Assets : Creditors 8,80,000 8,20,000 Debtors 23,90,000 28,30,000 Bank Loan 1,50,000 3,00,000 Less : Provision 1,50,000 1,90,000 Liability for Expenses 3,30,000 2,70,000 22,40,000 26,40,000 Board of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 7
Dividend Payable 1,50,000 3,00,000 Cash 15,20,000 28,20,000 Creditors for plant 2,00,000 Marketable Securities 11,80,000 15,00,000 and machinery Inventories 20,10,000 19,20,000 purchased Prepaid Expenses 90,000 1,20,000 91,60,000 1,24,80,000 91,60,000 1,24,80,000 Additional Information: (1) Net Income for the year ended 31.03.2014, after charging depreciation of 1,80,000 is 22,40,000. (2) Debtors of 2,30,000 were determined to be worthless and were written off against the provisions for doubtful debts account. (3) The Board of Directors declared dividend of 12,00,000. Note: Marketable securities are treated as cash equivalents. [10] (b) X Ltd. acquired 75% of the Equity Shares of Y Ltd. From the following Balance Sheet as at 31 st March 2014 of Y Ltd. and additional information furnished, determine Minority Interest in Y Ltd. as on Balance Sheet date Liabilities Assets Share Capital: Equity Capital ( 100) Reserves: Securities Premium General Reserve Profit and Loss Account Current Liabilities: Creditors Bank Overdraft 40,00,000 6,00,000 14,00,000 24,00,000 28,00,000 48,00,000 Fixed Assets: (Net Block) (Tangible) Current Assets: Stock in Trade Debtors Other Current Assets 80,00,000 40,00,000 24,00,000 16,00,000 Total 1,60,00,000 Total 1,60,00,000 When X Ltd. acquired shares, balances in Reserves of Y Ltd. were as under (a) Securities Premium 6,00,000; (b) General Reserve 2,00,000; (c) Profit and Loss Account 8,00,000. [10] Board of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 8
8.(a)(i) What are the procedures are adopted by the Government Accounting Standard Advisory Board for formulating the Standards? [10] (ii) State the principles of Government Accounting. [5] (b)(i) Explain the objectives and scope of IGAS 4 General Purpose Financial Statements of Government. [10] (ii) Give a brief comparison between Government Accounting and Commercial Accounting. [5] Board of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 9